The purchasing managers' index (PMI) for China's non-manufacturing sector came in at 47.5 in August, down from 53.3 in July, the National Bureau of Statistics (NBS) said on Tuesday.
A reading above 50 indicates expansion, while a reading below 50 reflects contraction.
It was the first time the figure fell below the boom-bust line since March last year, said senior NBS statistician Zhao Qinghe.
A breakdown of the data shows that the sub-indexes for sectors including road and air transportation, hotels, catering, culture, sports and entertainment dropped below the boom-bust line.
The sub-index for new orders declined 7.5 percentage points from a month earlier to 42.2, indicating weaker market demand in the non-manufacturing sector.
However, the construction industry recorded strong performances as construction activities picked up, with the sub-index for business activities rising to 60.5 in August, up 3 percentage points from a month earlier.
The sub-indexes for business activities in the wholesale, postal, telecommunications, satellite transmission, and financial and capital market services sectors remained in the expansion territory, according to Zhao.
Non-manufacturing firms' confidence in the market remained generally stable as the country has effectively curbed the recent resurgence of COVID-19, Zhao said, citing a sub-index measuring business activity expectations, which stood at 57.4.
Tuesday's data also shows that the PMI for China's manufacturing sector came in at 50.1 in August, edging down from 50.4 in July. Enditem
